7.3.1 Swedish broadband policy

The current broadband evolution started in 1999–2000 with a government bill that was aimed to support national and local initiatives and investments. The headline was ‘Trust to IT, Access to IT and IT competence’. The trust included security and technology. Access implied broadband provision with national, regional and local network support, including SMEs and schools. The financial support included SEK 2.5 billion (or roughly EUR 280 million) to a national operator-neutral backbone, SEK 3.2 billion (in the form of tax breaks) to municipalities to develop access and SEK 2.6 billion to regional networks and to create local infrastructure plans.

This was an important political declaration that ICT and broadband are important for society, and all local politicians and authorities started to discuss and plan broadband deployments. However, after the so-called IT bubble burst, these activities cooled down somewhat.

The current Minister for Information Technology and Energy has restarted a program to speed up broadband development: she launched a Swedish Digital Agenda and formed a broadband commission (Bredbandsforum) together with the regulator (PTS) and the industry to promote broadband development. Bredbandsforum has started several programmes; for example, fibre to the farms, which is a broadband cooperative model.

The Swedish Government’s broadband policy is documented in an official publication, Regeringskansliet (2009). There one can read that the overall objective is for Sweden to have world-class broadband. A high use of IT and the Internet is good for Sweden in terms of growth, competitiveness and innovation. It contributes to the development of a sustainable society, and also helps to meet the challenges of increased globalization, climate change and an ageing population in a sparsely populated country. A prerequisite for meeting the challenges set out in the Digital Agenda is access to high-speed broadband across the country. Swedish targets are: 40% of households and businesses should have access to at least 100 Mbit/s by 2015 and 90% in 2020. It is important that Swedish businesses and households in all parts of the country can take advantage of the opportunities offered by powerful broadband access. Then traditional work practices can change, new services and business models can evolve and new behaviours can emerge.

The central tenet is that electronic communications and broadband access should be provided by the market. The government should not control the market, nor the development of technology. Their task is to create good conditions for the market and remove barriers in the development of broadband by ensuring there is relevant regulation in place.

7.3.2 Regulation

Municipal planning responsibilities are clarified in the Planning and Building Act as reinforcing the connection to the infrastructure for electronic communications. The government has also initiated a so-called Broadband Council for collaboration and dialogue on the deployment of broadband. Furthermore, the Swedish NRA – the Post and Telecom Authority (PTS) – is assigned the task of investigating how radio-frequency bands for electronic communications can be used to improve accessibility in areas which lack broadband access, or with low-capacity and low-quality broadband. The universal service obligation is revised to reflect a minimum level of functional Internet access.

While FttB/FttH networks have been deployed massively in Sweden for over a decade, regulation impacting fibre access networks (be it directly or indirectly) has started to appear only recently.

In May 2010 the PTS passed decisions regulating the wholesale market for (physical) network infrastructure access (including LLU and shared access) as well as the wholesale market for broadband access. The Decision on the market for physical network infrastructure access (LLU) includes both copper and fibre lines. In addition to the provisioning of fibre access, it also requires the incumbent to deploy new fibre infrastructure in existing ducts if requested by an operator who is willing to pay the cost of the investment. However, this decision has been appealed in some parts and a court ruling on this issue is still pending. Concerns have been expressed that the reference offer of the incumbent does not correspond to the Decision of the NRA, as it does not allow the purchase of access to fibre between the incumbent’s Metropolitan Point of Presence and the network termination points connecting buildings, so-called ʻFibre to the Buildingʼ, FttB¹.

In August 2009, the government introduced an amendment to the competition law (which came into force on 1 January 2010) aimed at preventing the state, municipalities or regional governments from engaging in commercial activities in a way that is harmful to competition. The new legal provisions came as a response to the numerous complaints received by the national competition authority (NCA) regarding the problems encountered by private operators when competing with public ones. Certain operators still consider that some housing companies owned by the municipalities are trying to eliminate competition by allowing only one electronic communications provider to offer services in their blocks of flats.

In 2009 the PTS was assigned the task of studying open networks and services, and reached the following conclusions:

1. 1. Openness creates the prerequisites for innovation and competitiveness but must be balanced against other interests worthy of protection, such as incentives to invest and network security.

2. 2. Openness is promoted by securing non-discrimination and effective competition.

3. 3. Openness is of great significance and it is therefore important that suppliers in their marketing activities and in applicable terms and conditions provide clear and specific information with respect to lock-in periods and restrictions relating to Internet access and access to services.

The report that concluded the study states that one essential challenge to openness today is restrictions in access to passive infrastructure (e.g., dark fibre). A second major challenge can be traced back to insufficient consumer mobility due to long lock-in periods, high transition costs and other lock-in effects². One challenge which affects several levels in the value chain relates to openness when managing electronic communications over the Internet, network neutrality. The report suggests several measures aimed at securing openness, measures which take all interests worthy of protection into consideration – especially incentives to invest and network security. PTS suggests stronger principles for equal treatment when building new infrastructure, increased access to existing infrastructure, mandated information to consumers regarding possible pitfalls, the importance of openness and, finally, increased transparency regarding the existence of potential limitations of Internet traffic such as prioritization of traffic and blocking of services.

Somewhat controversially, PTS has recently decided to introduce price regulation for TeliaSonera, recognizing its position of significant market power (SMP). The price regulation is based on four broad and complex models. These models calculate the cost (or would-be cost) for Telia to install fibre throughout the entire country to every household and business. A price per connection is then calculated and, because Telia currently only has x% of the broadband market, the price that Telia can charge is x% (currently roughly 50%) of the calculated price per connection. While this regulation only applies to TeliaSonera, this puts a de facto price regulation on the whole market that is below the actual price of dark fibre. If another actor – a municipality network, for instance – charges the actual deployment cost, it risks losing customers to TeliaSonera. If it tries to compete with TeliaSonera to retain customers and applies TeliaSonera’s regulated price, it risks be taken to court for illegal state aid for setting a price below production costs (which the PTS model effectively requires). This in turn leads to a re-evaluation of municipal networks, which can affect municipal finances and thus provide fewer opportunities for fibre investment.

It is interesting that, against a certain widespread understanding in Sweden, the position of the Swedish regulator (PTS) is that staying on the passive level is no guarantee that the market is not distorted. For instance, if a service is currently provided by other actors on commercial terms and on a competitive basis, installing a fibre infrastructure which allows others to come onto the market at potentially lower prices is per se distorting the market. Naturally, that would not apply if the fibre network is responding to a need which the market (with the current infrastructure) cannot provide. This can be seen as an academic question. In any case, PTS’s mantra is that the market should take care of NGA deployment.

7.3.3 Regulatory trends

The price regulation of TeliaSonera’s fibre access introduced by PTS has generated a lively and somewhat bitter debate. It is believed that the price regulation represents a de-facto price standard which is going to make any fibre investment uneconomical and even politically unattractive (due to the risk of incurring state aid allegations). This position is widely held in the market and there is a significant degree of uncertainty on the future of this contested regulation, especially after a report commissioned by the Swedish Association of Local Authorities and Regions (SKL) (Deloitte, 2011). The report’s goal was to examine the impact of the price regulation and its results pointed to several risks; it concludes that there is no justification for claims a regulated charge for dark fibre will benefit end-users through lower prices and better choices.

SKL points out that many municipalities have invested heavily in fibre networks to assure access to modern broadband for their inhabitants. Municipalities have built up those networks because private investors were not taking such initiatives. Now those public investments are at risk of being frozen completely. SKL is discussing a scenario in which the market will develop towards a single, dominant player: i.e., a return to the monopoly of twenty years ago. TeliaSonera is backing the requests that this regulation be phased out, or the calculation model modified, claiming that claim this regulation and the specific model used are based on past circumstances no longer present and that, as the market has changed dramatically, so should the regulatory agenda.

Given this controversy, it can be expected that these rules are going to be amended, if not repealed altogether.

7.3.4 Government support and state-aid issues

The government bill ʻ99/00ʼ identified those areas where the market was too weak for a commercial roll-out. Hence, any such region or municipality could apply for financial support to deploy broadband networks. All municipalities received money to develop a local ICT infrastructure plan. This plan, which must include the connection of public buildings, such as schools, hospitals, etc., is the basis on which to apply for additional government funding for the actual network deployment. A crucial prerequisite to qualify for funding is that the network must be operator-neutral. This was widely viewed as being compliant with EU state aid rules in the sense that intervention was made in situations of market failure and acted upon to support the telecom market with a fibre infrastructure for all, rather than to compete with market actors. This was confirmed, as no claims of illegal state-aid were filed against the municipal initiatives.

7.4.1 Drivers for FttH deployments and broadband strategies

As is the case elsewhere, there is an underlying belief accompanying these fibre access network projects in Sweden: a political conviction that increased broadband penetration leads to social, environmental and economic benefits. Broadband infrastructure, primarily fibre, is increasingly seen as the fourth utility, and it is considered the task of the public administration to make sure that this utility is put in place one way or another. This, combined with the lack of commercial operators willing to invest in broadband, provides the major driver for the regional and municipal deployments described in this study. All the cases analysed concern predominantly rural areas, meaning that the population density is very low. This implies on the one hand that the investment costs are high and, on the other hand and more importantly, the potential revenues per deployment are significantly lower. This breaks not only the traditional FttH business case on the basis of traditional triple-play, already not a very strong case in very dense areas, but also the upgrading of central offices with DSLto connect only a few end-users. This is typically the case in the areas analysed in this study.

This is also a familiar situation in other European regions in which, due to the topography of the area, the access to broadband services was scarce and many areas were not being equipped with ADSL, which prompted the local governments to intervene⁴

However, once the infrastructure is deployed and activated, it is important to get the end-users on-board to use the network. According to the experiences from the projects analysed here, an important driver for service uptake has been the availability of high-speed Internet service. However, a second wave of subscriptions is now anticipated to be driven by TV-services (especially HD) which can be provided cheaper, with higher quality and flexibility of use and with broader choice.

A very important driver to generate interest and support in the deployment phase and high uptake in the operations phase is the presence of local fibre champions and a positive ICT culture. This is of course linked to historic factors (e.g., Hudiksvall had LM Ericsson and the Fiber Optic Valley, which helps to explain why it was so much ahead of the neighbouring municipality, Nordanstig), but the lack of such a catalyst can be compensated to a great extent by visionary politicians and by running extensive and continuous information campaigns among the population.

7.4.2 The open access business models

The dominant business model among Swedish municipal fibre network operations is an open access network model. The four cases described in this chapter reflect different flavours of such a model; therefore this section describes the model and reviews experiences obtained in Sweden.

The open network model, in which services are provided on a fair and non-discriminatory basis to the network users based on a shared infrastructure, is enabled by conceptually separating the roles of service provision and network provision. See Figure 7.2. Due to the different technical and economic characteristics of the different layers of the network, different roles and actors can be identified. A fibre access network broadly consists of a passive infrastructure (including right-of-way acquisition, trenching, cable duct construction, fibre cable installation and connections to home and office premises), and active equipment (transponders, routers and switches, control and management servers). The passive infrastructure is typically characterized by high CAPEX, low OPEX, low economies of scale (individual connections to homes and offices), and is highly local, hard to duplicate and hence subject to regulation. The active equipment is characterized by lower CAPEX, higher OPEX, higher economies of scale, and is subject to less regulation if provided in competition. These factors allow a further role separation between a physical infrastructure provider (PIP), which owns and maintains the passive infrastructure (typically real estate companies, municipalities or utilities), and the network provider (NP) which operates (and typically owns) the active equipment (incumbent operators, new independent operators or specialized broadband companies).

Figure 7.2 The open network model and typical open access value chain

Source: Adapted from Forzati et al. (Reference Forzati, Larsen and Mattsson2010).

Depending on which roles different market actors assume, the network will be open at different levels and different business models will arise, as illustrated in Figure 7.3. A single actor may act both as PIP and NP (7.3, a), in which case the network is open at the service level. If the roles of NP and PIP are separate (b, c and d), then openness at the passive infrastructure level is achieved. Generally, one PIP operates the passive infrastructure, while one or several NPs can be allowed to operate the active infrastructure, typically over a fixed period of time, at the end of which the contract may or may not be renewed (in which case a new NP is designated and active equipment may need to be replaced). Most often, economies of scale make it impractical to have a truly multi-NP network (although larger networks may assign the operation of different geographical parts of the network to a different NP). Independently of the specific model, however, the NP should offer different service providers (SPs) access to the network on non-discriminatory conditions. The end users typically purchase services directly from the service providers. The NP receives revenue from the SP and pays a (one-time) connection fee to the PIP for network access.

Figure 7.3 Access network business models

Source: Adapted from Forzati et al. (Reference Forzati, Larsen and Mattsson2010).

If the NP also acts as SP (b) the network cannot be described as really open according to the definitions applied, but it is still more open than the conventional vertically integrated FttH model in (g), which most incumbent operators follow today. In case of local loop unbundling (LLU, Figure 7.3e), a vertically integrated operator is still present, but there can be multiple actors working as combined NP and SP. In case of bitstream access the vertically integrated operator assumes the role of NP, but there can be multiple SPs offering their services using wholesale bitstream access.

Note that some of the roles shown in Figure 7.3 can be divided into several others and that the delineation between the various roles is not always as clear as the figure suggests. However, the figure provides a fair idea of which types of business models with respect to open access are used in Sweden today. Although the degree of ‘openness’ will vary depending on the type of actor and the layer in the network that is considered.

The first optical access networks in Sweden were built around the turn of the twenty-first century by Bredbandsbolaget, TeliaSonera and a number of municipalities. While Bredbandsbolaget and TeliaSonera are vertically integrated operators, owning the whole value chain from fibre infrastructure to services, for the municipality networks the situation was different. In most cases a municipal company both owned and operated the network (PIP + NP). Although situations with only external SPs existed, in many cases, the municipalities also acted as SPs, sometimes in competition with other SPs. This became a default as it had been difficult to attract external SPs for several reasons:

1. (1) limited number of subscribers;

2. (2) connection procedures (both technical and administrative) varying from network to network, thereby hindering economies of scale for the SPs;

3. (3) a small number of SPs, much fewer than today;

4. (4) lack of business actors taking the role of NP and handling the contacts with the SPs, etc.

The market has matured considerably during the past ten years. The process of connecting SPs is now much simpler, technology has improved, there are network providers handling SPs as wholesale clients, the number of SP is now much higher, etc. Also, many municipalities have come to the conclusion that they should focus more on providing infrastructure to their citizens, rather than competing with commercial companies in the services market.

Although the market is not yet fully mature, in general municipal network operations have moved downwards in the value chain – increasingly closer to just owning the fibre infrastructure (pure PIP role) – while network operation (NP role) and service delivery (SP role) are left to other players (other municipal utilities, independent operators, or even large telcos such as TeliaSonera). Despite the clearer roles, many smaller municipal networks struggle economically, due to a reduced revenue share in a marketplace with many competing players. This has led to a consolidation process where municipal networks either have been acquired by competitors or have started to collaborate closely. This consolidation process is still ongoing.

7.4.3 Services and uptake rate

Services present on Swedish FttH networks are predominantly voice (both stand-alone IP and over-the-top), Internet and TV, which make up the classic triple-play. Different data rates for Internet service are generally offered, from 1 Mbit/s to 1 Gbit/s. The most commonly offered and commonly subscribed services are 10 Mbit/s and 100 Mbit/s, for which the retail prices range between EUR 10 and EUR 30⁵. Telephony is generally quite cheap but it is not a driver of uptake. Internet service is provided almost exclusively over an Ethernet point-to-point solution; thus, there are two alternative configurations regarding the customer-premise equipment (CPE):

1. For FttH, a CPE consisting of an O/E (optical/electrical) converter and an integrated switch (sometimes a router) which functions as a service separator using VLAN (virtual local area network) tags;

2. For an FttP + in-building LAN, if only Internet-based services are provided, a simple O/E converter and a switch are placed in the basement of a multi-dwelling unit: CAT 5 or CAT 6 copper cables are then drawn to each apartment; hence, end-users do not need any special CPE and can connect the Ethernet CAT 5/6 cable to their computer or home Wi-Fi router; otherwise, a solution similar to the FttH case is followed.

TV over the FttH connections are usually provided using a VLAN, and the service is then separated at the CPE. TV packages usually include must-carry channels (around eight national and regional channels), plus bundles of four to six channels for a cost of EUR 5 to EUR 10 per bundle. Both traditional proprietary TV platforms are present (with a cost of roughly EUR 15 for the basic package) and now there is also the so-called open-TVplatform, using a Sweden-wide standard open platform, which allows the end-user to change TV-provider without having to change the set-top box. Prices for basic packages with the latter are as low as EUR 3.50 per month.

Other services such as video-on-demand, home-security (video-surveillance), cloud services (back-up, remote hard drive, antivirus, etc.) are starting to appear, although these are for the moment few in number and the added value compared to equivalent over-the-top services (e.g., running over the Internet connection) is not always clear. Several e-health pilot projects have been run but, for the time being, the big breakthrough is still to come (although SMEs like Open Care are very active). When it comes to e-government services, these are for the time being limited to over-the-top, web-based basic services also available elsewhere, but arguably of better quality through FttH.

A service that is potentially of interest is teleworking, including teleworking centres. While teleworking is an increasingly popular phenomenon in Sweden, and one which is greatly encouraged by fibre networks, teleworking centres never really picked up. One reason for this may be the generally very good home connections, enabling distance working without the extra cost for office space.

The uptake of services in the Swedish municipal networks varies. As an indication, the average uptake on the networks operated by Zitius (currently active in ten municipalities) is roughly 35 per cent. The trend appears to be similar to the uptake of cable-TV, and that is generally gradual. As further reference, the Deutsche Telekom led research project OASE⁶ works on different scenarios: a ʻconservativeʼ one in which a 60% uptake is reached in 20 years (in areas with high ADSL density and relying on a traditional triple-play-driven, vertically integrated business model) and an ʻaggressiveʼ scenario in which the same uptake is reached in 8.5 years. Interestingly, even this is conservative in some cases: some rural, single-dwelling-unit areas in Hudiksvall and Säffle have uptake rates of 80% or more only a few years after deployment. Queues of households wishing to be connected to fibre (for an entry fee of EUR 1500) are now the case in Hudiksvall.

7.4.4 Observed socio-economic benefits

One of the first effects that was observed in FttH municipal networks in Sweden is a saving of 30% to 50% of the total municipal data and telecommunication costs (see also Forzati et al. Reference Forzati2012). This is partly due to increased efficiency (reduced equipment, energy consumption, and footprint per unit of transmitted information) and partly due to the fact that the high-capacity fibre network allows for more competition between service providers and thus lower prices.

In 1996, the city of Stockholm started purchasing telephony services from the open market, which was unique for public organizations in Europe at that time. The city had recently connected its operational sites and offices with its own fibre network. This allowed it to procure its telephony in full competition and to drive down costs. The city’s external telephony cost was between EUR 15 and EUR 20 million. The competition made available on its fibre-optic network resulted in a savings of 30%. However, this is a conservative estimate, and savings have probably grown larger over time, says Per-Olof Gustavsson, who at that time was active in the City of Stockholm’s city council office. In Jönköping, where the fibre connection has been less extensive, the savings figure was around 10 to 15 per cent.

Similar savings have been observed at regional administrations as well. The Stockholm Regional Council (Stockholms läns landsting) reduced its data and telecommunications costs by 50%, equivalent to roughly EUR 8 million, thanks to the fibre network. In Norrbotten, a fibre network has been installed linking 5 hospitals, 33 clinics and 34 dental clinics, which reduced communication costs also by 50% while providing fifty times faster communication. Service providers have been able to create solutions for digitized medical records, transmission of digital radiography, digital recipes, video-conferencing and IP telephony.

Another interesting fact is that the Swedish tenants’ association (Hyresgästföreningen) has agreed with property owners’ associations and housing companies to an increase in the rent of around EUR 5 per month. This can be considered a conservative evaluation of the perceived added value of fibre connection for the end-user because it makes available high-quality services at lower prices, especially entertainment and communications, the ability to work remotely and more free choice of work and housing, improved individual health, reduced need for hospitalization, simpler and more transparent interaction with public services, etc.

Indirect effects that were observed included the reduction in migration to larger cities (a problem among rural municipalities in Sweden) and improved employment, due to the availability of an ICT infrastructure that prevents businesses from moving to the cities, creates new business opportunities and allows people to stay in or move to rural areas with higher quality of life, thanks to a healthy local business environment and the possibilities offered by distance working. See for details the four cases described in Section 7.5.

7.4.5 Successes, challenges and future directions

Fibre deployments in Sweden have been successful in general when it comes to public support and end-user uptake. In some cases, requests for fibre connections exceed the roll-out capacity and queues have been forming. This success has been visible especially in rural areas where alternatives for Internet connections are lacking, and where bottom-up approaches (e.g., in terms of co-operatives to build village networks) are often used to gather support for centrally driven initiatives. Sometimes the municipality only needs to connect the existing village networks and build out the metropolitan section of the network.

In the urban areas it is often more challenging to gather significant uptake, especially among privately-owned multi-dwelling units (MDUs). Publicly owned MDUs are usually inclined to sign up, thanks to the involvement of the housing organizations, which see fibre not only as an infrastructure upgrade but also as a tool to simplify the provision of traditional services (the fibre network they connect to is usually an open network, therefore leaving the choice of Internet and TV providers to the tenants, which is seen as highly desirable) and more advanced services, such as estate management tools (remote surveillance, etc.).

Among the challenges being faced by municipal fibre network owners is that of attracting service providers, especially in the smaller and more remote municipalities. This has been to some degree solved by forming regional networks, which are a type of federation of small municipality networks⁷. These regional networks provide the scale, visibility and ‘single-interface’ towards the service-provider market, and have proven to be very successful in bringing service providers to all member municipalities. Another positive effect is that they have made it possible for small networks to rent out dark fibre to the wholesale market (this currently accounts for 30% to 70% of municipal network revenues).

The financial situation is generally quite positive, with municipal network companies showing positive results after ten years (with less than 25% of them currently showing negative results)⁸, although different business models and different situations have led to different outcomes, also depending on how depreciation and one-time connection fees are accounted. In general, companies that only invest in passive infrastructure (PIP role), and contract out the network management (NP role) tend to have a leaner organization, an easier business case (similar to a municipal utility), and a better medium- to long-term financial situation. For these fully functionally-separated networks, negotiation on price in the NP contract is a delicate balancing act, although market prices are now starting to appear. Some companies, still vertically integrated, tend to be in a relatively good financial situation, although in most cases their fibre deployment is limited to the nodes for xDSL backhauling (FttN). Extending fibre to the premises (FttH/FttB) will require extensive investments, which will significantly affect the cost-revenue balance. Another delicate factor is the accounting, in particular the choice of the depreciation period for the investment and the distribution of the revenue from the one-off connection fees: fine tuning these parameters can in some cases make or break the business case.

A practical and important limitation of FttH in general is its reliance on power at the end-users’ premises, which makes it challenging to deploy critical services on fibre connections (such as nurse alarms for elderly and reduced mobility citizens). There are several solutions being investigated and tested but none is sufficiently reliable yet, so the issue remains for the time being.

Turning to future directions and trends, the most important one is probably a general move down the value chain. Encouraged by the SSNf (Swedish Association of Urban Networks) and SKL (Swedish Association of Municipalities and Regions), many municipal networks are migrating from vertical integration towards a layered model, in which the municipal network company only owns and operates the passive infrastructure. The rationale for this is that passive infrastructure is a familiar business for municipalities and their utilities⁹, while active equipment is better left to the market¹⁰. While in general this is seen as the right way to go, and there are no more municipalities choosing to build a new fibre network and operate the active layer themselves, some challenges remain with this layered model, which should be mentioned:

1. Some municipalities have moved away from the integrated PIP/NP model but are currently stuck in a hybrid model (whereby some connectivity services are still offered), which risks removing traditional revenue streams while leaving important residual overhead and running costs (see the Hudiksvall case).

2. The contracting-out of the NP role implies that specialized local technical staff is not needed anymore: while this reduces the costs significantly and brings about more specialized competence overall, it has the drawback of increasing the potential response time in fault-management (see also the Säffle case).

3. The open access business model has been a success in bringing freedom of choice and low prices, but also poses some challenges in the management of the responsibility areas (fault management and first-line support) between the service providers and the network provider (running the actual network connectivity). A standard for open network interfaces would probably help make things run smoother¹¹.

Among other trends and future directions, we note that redundancy (generally in the form of rings) is recognised more and more as a critical feature of the network, in order to attract businesses and public sector actors. Also, a progressive defragmentation of the municipal networks is taking place, partly thanks to the emergence and success of regional federations mentioned above and partly to a consolidation process whereby some municipal networks are either acquired or effectively merged into larger neighbouring networks, thanks to contracting out the NP role. Among the effects seen are a reduction of resource duplication, increased professionalism and general synergetic effects. However, to do that on a regional basis (e.g., by centralizing the tens or hundreds of technicians scattered in various municipal networks) would provide a great resource for all, although that is seen as too big a challenge at present.

7.5.1 Hudiksvall

The Hudiksvall municipality (Hudiksvalls kommun) is situated in Gävleborg County, on the coast of central northern Sweden, some 300 km north of Stockholm, 130 km north of Gävle (population: roughly 100,000) and 84 km south of Sundsvall (population: roughly 50,000), to which it is connected by the E4 highway and the East Coast Railway (Ostkustbanan). The municipal seat is in the town of Hudiksvall.

The town of Hudiksvall is located on the coast, and the municipal territory extends along the coast as well as for several tens of kilometres inland. The territory is largely rural but includes several towns and villages. Roughly 40% of the population lives in the main town, so the fibre deployment is of several very different characters: urban in town, ‘sub-urban’ in the villages, and sparsely rural in the largest part of the territory.

The largest employers are the municipality and the county council, with around 38% of the workforce. Although in decline during the twentieth century, the forest industry represents half of the industrial activity; the largest private employer is the Holmen paper product company, with about 10% of the workforce. The electronics industry has become an important sector (19% of the workforce) and is dominated by Ericsson Network Technologies, making optical and copper cables for telecommunication systems. This, together with efforts by the municipality and the leveraging of European structural funds, has led in more recent times to the development of fibre research and speciality production¹³.

Business model

Fiberstaden operates a hybrid between a vertical integration and an open access business model. (See also Figure 7.4.) The role of the NP is currently given to Zitius in Hudiksvall, but Fiberstaden still sells wholesale connectivity services. In Nordanstig, Fiberstaden acts as an integrated PIP+NP. In both cases, the networks are owned by municipalities directly, not by Fiberstaden. In Hudiksvall, Zitius offers a broad range of services, through a portal called bredbandsväljaren.se (ʻthe broadband chooserʼ), where all services carried over the network (currently offered by twenty SPs) can be ordered in one place. However, once a service is purchased, the end-user pays directly to the service providers and all communication takes place directly between SP and end-user. The service providers are attracted to this model thanks to the nationwide presence of Zitius (so an SP only needs a point of presence in Stockholm to serve a large number of end-users across the whole country).

Figure 7.4 The business model for the Fiberstaden fibre network, Sweden

Source:Authors.

Ten service providers have switches in Hudiksvall and five SPs have switches in Nordansting. Fiberstaden also offers point-to-point transmission capacity to companies and, increasingly, dark fibre (e.g., to Tele2 to connect 4G masts; TTC; Norrsken; and Telia). Currently, 30% of Fiberstaden’s revenue comes from dark fibre and wholesale connectivity services.

As part of the retail business model, the media converter at the customer’s premises is owned by Fiberstaden. Fiberstaden receives EUR 4.50 per month per active customer from the NP Zitius. Troubleshooting is taken care of by Fiberstaden; Zitius has no local staff.

In theory, the end-user has no need to know about the existence of the NP and indeed the bredbandsväljaren.se portal is accessible directly from the municipality’s website and from the websites of the individual SPs. At the municipal website the PIP is presented as a municipal service, just like water, electricity or sewage. Zitius is not even mentioned in bredbandsväljaren.se, despite its being managed by the company. However, challenges remain, notably in fault management, as a clear demarcation of responsibilities is missing, leading to end-users being sent back and forth between SP, NP, and PIP when faults occur.

The price to connect a single home to the property border is EUR 1,500 (the actual cost is estimated to be roughly double), while property owners take responsibility for the digging across the property.

Examples of the socio-economic impact of fibre

Hudiksvall started installing fibre in 2002. Since then, the number of firms in the Hudiksvall municipality has increased by 6% to 14% per year between 2004 and 2009. Representatives of Hudiksvall’s municipality say that fibre has a positive impact on the municipality’s overall business climate. Moreover, there are examples of companies moving from Hudiksvall town towards more rural areas of the municipality thanks to cheaper rent.

Hudiksvall previously had, like many rural northern municipalities, a negative population growth, but since the installation of its fibre-optic network, the municipality stopped losing residents. In December 2002 its population had fallen to 37,048 (down 4% since 1994). The decline halted in 2002 when a significant number of households were connected by fibre. See Figure 7.5. This suggests that the effect of fibre investment may have a fairly rapid impact on population trends, although other factors may also have contributed. Similarly, thanks to fibre, in Nordanstig one can now see people returning to the municipality after having left years ago.

Figure 7.5 Population evolution in Hudiksvall, Sweden, 1995–2012

Data source: Statistics Sweden (SCB).

There are many examples of the effects of fibre on individuals in the local communities: for instance, in the village of Lindefallet, between Hudiksvall and Söderhamn, where 98% of the residents are connected to fibre. Several people decided not to move, thanks to fibre. Peter Engstrom, 34 years old, and Linn Sjoberg, 30 years old, chose to build a house in Lindefallet because of fibre, which is seen as a prerequisite for living close to the forests and nature without feeling completely isolated. Peter and Heather Nilsson moved from California to raise their four children in a safe environment, and journalist Marie Sandberg and author Georg Johansson moved there from Brussels. Several local companies have managed to assert themselves in an increasingly competitive environment thanks to fibre, and even farms are connected to fibre.

Since fibre was deployed in 2004, the population increased by 7.5% in a village that has neither a school, nor a health clinic, nor an industrial area. The investment in fibre, in combination with active associations, makes Lindefallet a lively village and thus a village that people want move to and to invest in.

7.5.2 Säffle

The Säffle municipality (Säffle kommun) is in Värmland County in west central Sweden. Its seat is located in the town of Säffle. The municipality covers a peninsula in Lake Vänern (Värmlandsnäs), and includes a large freshwater archipelago.

In the town of Säffle, the economy is largely based on industry. Säffle has continued to grow as the wood pulp industry has expanded in Sweden. The pulp mill in Säffle has been a major driver of the local economy. In the remainder of the municipality farming is important. The Värmlandsnäs peninsula is very significant to the economy through pork production. The area supplies more than 200,000 people with pork. The archipelago off the peninsula (which also has old rune stones and other ancient monuments) is a tourist attraction.

The territory is largely rural with smaller localities of few hundred inhabitants each. Two-thirds of the population are concentrated in the main town, so fibre deployment is of three very different types: urban in town, covering the largest portion of the population, ‘sub-urban’ in the villages, and rural in the largest part of the territory.

In its broadband strategy, the Säffle municipality declared that every household should have access to a high-speed network. Due to the lack of commercial operators ready to invest in broadband in the municipality, it decided to start a fibre deployment project through a municipality-owned company called Säkom. All investments have been made on commercial terms and have received financing partly by EU structural funds and partly through commercial loans.

Business model

Säkom operates a ‘pure’ open access business model (variant (c) in Figure 7.3; see also Figure 7.6). The NP role was taken by Telia by agreement in autumn 2009. This was later amended and Telia is now allowed to offer services. Säkom is a small organization, which the CEO likes to define as a group of ʻqualified purchasersʼ. Säkom needs to be financially independent in the long term, but does not need to generate profits.

Figure 7.6 The business model for the Säffle fibre network, Sweden

Source: Authors.

The separation of the PIP and NP role makes it viable for operators to join and provide connectivity and service provision, because long-term investment for the infrastructure deployment, which typically has a horizon of five to ten years, is no longer part of their business case. On the other hand, the municipality is in a position to accept a longer-term return on investment and assume the capital investment in infrastructure, while avoiding responsibility for technical issues in which it does not have enough competence. Moreover, the NP contract was awarded to a national operator which can rely on significant economies of scale, bringing down the operating cost of the network.

At the same time, the business case for service providers is enhanced by the existence of infrastructure and connectivity, so they can focus on efficient service provisioning (with cost reduction coming from know-how and economies of scale due to their national or sometimes international scale), customer care, marketing and product development. Efficient service provisioning is especially important for Internet service (increasingly seen as a commodity), where price and reliability are the major selling points, whereas the TV product offering is an important differentiating factor.

Telia was awarded the NP contract with the obligation to provide and connect at least three ISPs, two TV providers, and two providers of prioritized IP telephony (today there are five ISPs, three TV and two priority IP-telephony providers). Telia was not allowed to sell services initially. It was argued that if Telia had been allowed to sell services in the beginning, other SPs would have found it hard to establish a viable position. However, this decision was not very popular with the citizens. Once other SPs had the time to become established and Telia was not considered dominant anymore, this ban was removed.

As part of the business model, the media converter is provided and maintained free of charge by the NP (Telia) and, when buying services other than just Internet, the service separator is also provided and maintained by Telia. First-line support is taken care of by the service providers, although end-users frequently call Säkom (PIP), which nonetheless thinks that this first-line burden is manageable. With time, communication between PIP and NP has improved considerably. Telia as NP has concluded service contracts with outside firms for installation and maintenance (in Säffle and nearby Karlstad).

There are two types of service-level agreements (SLAs) in place: restoring services within twenty-four hours, if fewer than twenty-four users are affected, and restoring services within six hours, if twenty-four users or more are affected. The SLA was invoked when the TV service started to have problems last autumn; these then escalated, and on New Year’s Eve one TV service (from SP Serverado) was down until 3 January. The NP Telia offered three months of free TV as compensation.

The digging cost is EUR 4.50/m on average (varying between EUR 2/m to EUR 11/m in the rural area, and around EUR 35/m in town), which increases to around EUR 8/m to EUR 10/m if connection costs are included. Housing cooperatives and housing companies have to pay EUR 2,200 to connect to the fibre network, while the in-building network is their own responsibility. An agreement was reached whereby housing companies pay EUR 11 per month per apartment and the tenant pays EUR 2 per month to Säkom for 15 years.

In addition to the retail sector, Säkom is offering dark fibre rental to business users and large organizations. Among the current clients are ʻNet for Mobilityʼ (dark fibre rental for ten years), the municipality and the Swedish Church. Businesses that have expressed an interest in dark fibre include the ICA food chain, TDC, and others. Capacity is not really limited, as ninety-six fibres are installed in the backbone network and twenty-four fibres to the nodes.

Currently a price per-kilometre is charged, but other models like price per connection, and prices for specific fibre spans are being considered; some are more popular than others. Large firms are currently connected to the copper network and they are generally bound by long-term contracts. When these run out, they are likely to migrate to fibre.

7.5.3 Norrsken (central-northern Sweden)

The central-northern regions (län in Swedish) of Dalarna, Gävleborg, Västernorrland, Jämtland and Västerbotten represent mostly rural regions with middle incomes and a low population density (generally below ten per square kiometre on average).

The territory is largely rural, generally characterized by medium-size towns along the coast (from 10,000 to 80,000 inhabitants) in which by far the larger portion of the population is concentrated, as well as a large number of smaller localities of a few hundred to a few thousand inhabitants each, inland, at very large distances from each other and generally surrounded by farmland.

7.5.4 Skånet

Skåne is the southermost region (län) in Sweden, and includes thirty-three municipalities (kommuner), the largest being Malmö (301,000 inhabitants), Helsingborg (130,000), Lund (111,000 inhabitants) and Kristianstad (80,000 inhabitants).

Around 130 km long from north to south, Scania covers less than 3% of Sweden’s total area, but the population of approximately 1,230,000 represents 13% of Sweden’s total. Skåne is mainly a hilly territory; with moderate population density (110 inhabitants/km²), it is among the most densely populated regions in Sweden. Skåne is a relatively wealthy region, with intensive farming as well as a thriving high-tech and academic metropole.

Historically, Skåne has had a good penetration of broadband connections provided by DSL. A higher regional goal now applies: 100 Mbit/s to almost everyone in Skåne by 2020, meaning fibre to the home.

7.6.1 The Stokab model

Stokab owns and is responsible for the passive fibre network, while market players operate and deliver services over the network. Stockholm’s basic idea is that IT infrastructure should be available to the whole society – public sector, telecom operators, and other businesses alike. Therefore Stokab’s network is designed to facilitate competition: the fibre network is open to everyone on equal terms.

The aim of the network’s deployment is to create an ICT infrastructure that allows competition by giving telecom operators and other companies and organizations access to the infrastructure. This vision differs from the prevailing opinion in the rest of Europe, where fibre and broadband networks are often considered as networks for telecom operators. Stokab, however, has inspired several municipal and regional fibre networks throughout Europe and beyond, whereby the open access network model is becoming increasingly better appreciated. Stockholm is often cited as a world-class ICT city.

Aside from passive fibre lines, Stokab provides physical space in nodes equipped with power, cooling, etc. Stokab’s fibre network connects almost all multi-dwelling units and commercial properties in the Stockholm municipality: about 90 per cent of households and almost 100 per cent of enterprises have the possibility of signing up for a fibre-based connection.

An extensive backbone network connects industrial areas, all major healthcare facilities and urban centres in the region. The fibre network is available in all parts of the municipality and as an extensive interconnecting network throughout the region. With its 1.25 million kilometres of fibre (in 5,000 km of cables), Stockholm is one of the world’s most developed cities in terms of fibre.

Since the company’s inception in 1994, the passive network structure and the business model have been designed to enable all stakeholders to define their own network structures. The lease of the network can expand as well as shrink based on a player’s need.

In 2012, Stokab had over 100 telecom operators and more than 700 companies and organizations as customers. These can lease fibre directly from Stokab to deliver services in competition. Virtually all telecom operators in Sweden have facilities in Stokab network nodes. National and international fibre connections reach Stokab nodes so that all operators can gain access to links throughout Sweden and the rest of the world, through virtually any operator.

7.6.2 Socio-economic return on investment

Stokab had great importance for Stockholm’s businesses and IT-development. Without Stokab’s fibre network, science parks like Kista, north of town, would probably not have developed into what is today’s success: Kista Science City, for instance, has more than 1,000 ICT companies and around 24,000 employees, as well as 6,800 university students and 1,100 researchers within the field of ICT. It is an attractive environment for ICT companies and developers so it is not surprising that all major IT and telecom companies, as well as universities and research institutes like Swedish ICT, have offices in Kista.

The fibre network has also facilitated innovations and new enterprises such as Spotify and Skype. Media companies have also been able to produce television in a whole new way.

For the past twenty years, Stokab has invested an average of more than SEK 250 million per year, to total of SEK5.4 billion up to 2012. This investment has been possible thanks to the profits generated by Stokab. Break-even was reached in 2001 and the accumulated profit has now passed 1 billion SEK. Until now the profit level has been low compared with the investment level due to the heavy upfront investments required in the initial phase. From the year 2005, the returns have increased steadily, enabling further major investments. It is worth mentioning that the fibre network was built without public funding and was instead financed through loans and revenues.

Through this extensive open fibre network provided by a neutral player, telecom operators can lease and design their own fibre networks without having to make costly investments or having to pay expensive leasing fees to a competitor. Today, to lease fibre in Stockholm costs less (sometimes much less) than half as much as in other capitals around the world. This translates into lower costs, not only for operators but also for all enterprises that have a need for fast and reliable communications. Lower lease prices propagate down the value chain and stimulate entrepreneurship and new service developments.

The fibre network also delivers a wide range of indirect effects to society. It enables, for example, the more effective use of cloud services, videoconferencing, healthcare, distance education, and other bandwidth-hungry services like HD-TV, video on demand and other streaming media. Moreover, innovation power is unleashed when both small businesses and households have access to the same broadband connectivity that previously was only available to large companies.

As the telecom operators compete on equal terms, competition is fierce in Stockholm, which leads to lower prices for broadband compared to cities where competition is weaker. Savings due to lower broadband costs for companies are estimated at approximately SEK 75 million per year if compared to the capital city of Denmark, Copenhagen. The difference becomes even more significant when other, more expensive, European cities are used as the benchmark.

Stockholm’s city housing companies have had a major role in the development of broadband. Early on they adopted a broadband policy to connect their properties to Stokab’s network and to install fibre all the way to each apartment. They are also installing home networks inside the apartments with outlets in every room. Through collaboration models, they have inspired other property owners of multi-dwelling units to join Stokab’s network. The housing companies’ accumulated investment now amounts to nearly SEK 2 billion.

Building a property network also has other merits beyond the mere delivery of broadband services to the tenants. Since the property owners connect all parts of the property, the communications network can also be used for managing, monitoring and measuring the facilities. By connecting multi-dwelling units with fibre, property owners have been able to use control and automation services more effectively (electronic locks, surveillance, etc.), while at the same time being able to raise the rent as the fibre connection has given tenants an added value. Until now, fibre connectivity has led to an increase in use value for the tenants and a higher property value for municipal housing companies in Stockholm (nearly 100,000 apartments) of SEK 1.85 billion, as well as increased rental revenues of over SEK 30 million per year. These effects cover the housing companies’ investments almost in full and are expected to grow in the coming years.

Generally, when building a 4G/LTE network, 70–80% of the total cost derives from deployment of fibre infrastructure. In principle, each base station needs to be connected to fibre to sustain the high 4G/LTE capacity. Leasing the required fibre connections, instead of investing in a private backhaul network, can significantly reduce the deployment cost for 4G/LTE. The world’s first 4G/LTE network was installed in Stockholm. Net4Mobility (jointly owned by operators Telenor and Tele2) states that 4G/LTE would not have been launched in Stockholm if the necessary fibre had not been available to lease from Stokab. Today, four 4G/LTE-networks with extensive coverage are operating in Stockholm.

As Stockholm City and Stockholm County have been able to connect their premises with fibre, it has become possible to purchase data and telecommunications services on an open market. This has generated a cost saving for the municipality and for the county of about SEK 2 billion over the years 1996–2012.

Stokab procures its deployment, operations, materials, planning, etc., from the private market. The procurement process and the large investments made over the years have generated a direct economic activity that is estimated to be over SEK 5 billion in revenues for the supplier industry.

Several studies show that high-capacity broadband leads to growth and the creation of jobs beyond the direct economic activity generated in the supplier industry: e.g., through the development and use of advanced services and products, as well as higher ICT competence, which in turn leads to increased productivity and entrepreneurship. According to Acreo’s econometric model, the ‘job value’ which the fibre network has created in Stockholm is estimated at about SEK 7.7 billion.